News of Note
CRA indicates that a negative ACB gain from a partnership interest that is TCP is not subject to s. 116
Email this ContentWhere a partnership has ceased to exist, any negative adjusted cost base to a taxpayer (including a non-resident) of its partnership interest at the end of the fiscal period is deemed to be a capital gain from a disposition of its interest in the partnership – but its partnership interest is not deemed to be disposed of to the partnership (cf. s. 84(9).) Given this gap, the negative ACB gain is not subject to s. 116 even if the partnership interest was taxable Canadian property, so that there is no requirement to make a s. 116 remittance under s. 116(5) failing a s. 116 certificate.
Although not discussed, s. 98(1)(c) also only deems the negative ACB gain to be a factually-immaculate capital gain, and not a capital gain from the disposition of taxable Canadian property for s. 2(3) purposes, and given inter alia the precise timing of its application, appears to operate without being affected by the draft s. 40(3.1)(b) rule even where the interest is of a limited partner.
Neal Armstrong. Summary of 9 August 2017 External T.I. 2017-0709351E5 under s. 98(1)(c).
Findmypast – Inner House of the Court of Session finds that the time of a supply of services was accelerated by prepayment only where the services were precisely identifiable
ETA s. 152(1) provides that GST/HST for a taxable supply becomes payable if the consideration is prepaid. However, ETA s. 168(6) provides that where the value of consideration for a taxable supply is not yet ascertainable, there is a corresponding deferral of the date on which the related GST/HST becomes payable.
The European VAT rules have a similar rule to ETA s. 152(1), which effectively has been restrictively interpreted by the European Court of Justice so as to only apply where there is “precise identification of the goods and services that are to be supplied.” Lord Drummond Young found that this test was not satisfied for a genealogical site, where customers would purchase credits which could be applied during specified time periods to download historical records (e.g., birth and death records) whose number was determined in accordance with parameters that were subject to change by the site – and with a significant number of the credits never being redeemed.
Since the prepayment rule did not apply, there was only a taxable supply of services when the credits were applied by downloading particular records - rather than at the time of the prior purchase of the credits.
Neal Armstrong. Summary of Revenue and Customs Commissioners v. Findmypast Ltd., [2017] CSIH 59 under ETA s. 152(1) and s. 123(1) – service.
Ahmad – Tax Court of Canada finds that CRA was required to determine, when assessing, whether the taxpayer had an unclaimed GST/HST rebate
CRA correctly assessed an individual (Ahmad) so as to deny the new housing HST rebate (because, due to a change in plans, the first use of the new home was its rental to a third party), and advised him that he might consider applying for the New Residential Rental Property Rebate (NRRPR). Ahmad instead appealed the denial of the new housing rebate, and did not apply for the NRRPR until the two-year deadline for doing so (under ETA s. 256.2(7)(a)) had passed – and also failed to file a Notice of Objection to the CRA assessment denying his NRRPR claim.
As one would expect, Russell J found that Ahmad could not appeal the assessment denying him the NRRPR. However, Russell J found that CRA, in assessing Ahmad for the HST that was payable given the absence of the new housing rebate, had been required under s. 296(2.1) to in fact determine whether that assessment was reduced by another allowable rebate, namely, the NRRPR. Russell J referred this assessment back to CRA for the required determination under s. 296(2.1) as to whether Ahmad was entitled to an allowable rebate for the NRRPR.
CRA would not like the notion that, when assessing GST/HST, it is required to consider whether a rebate is available to a taxpayer even before it is claimed, and presumably will not do so (see 183783). This case suggests that the taxpayer may have a remedy where there is such a failure.
Neal Armstrong. Summary of Ahmad v. The Queen, 2017 TCC 195 under s. 296(2.1).
Vrantsidis – Tax Court denies an ADHD-based disability tax credit claim
Favreau J found that the effects of a teenage son’s ADHD were not severe enough to meet the meaning of “markedly restricted” in s. 118.4(1) so as to qualify a parent for the disability tax credit.
Walkowiak instead dealt with an unsuccessful claim based on the ADHD of the taxpayer herself.
Neal Armstrong. Summary of Vrantsidis v. The Queen, 2017 TCC 204 under s. 118.4(1).
CRA indicates that the s. 146(8.2) deduction for withdrawing excess contributions can be available even where Pt X.1 tax is not applicable
S. 146(8.2) allows a taxpayer to claim an offsetting deduct for a payment received out of an RRSP where it relates to undeducted premiums. Although it permits a taxpayer to reduce an RRSP cumulative excess amount to which Part X.1 tax applies. However, CRA notes that:
This provision can apply whether or not the annuitant is subject to Part X.1 tax at the time the payment is withdrawn from the RRSP.
For example, where an individual makes an RRSP contribution not exceeding the RRSP deduction limit for the year but, later in the year, the individual wishes to withdraw the contribution and to not claim a deduction (for example, because of cash flow issues, or deciding that a TFSA contribution was preferable), the deduction under 146(8.2) generally would be available except that, as per s. 146(8.2)(e), the deduction would be denied if, at the time of the contribution, “the taxpayer did not reasonably expect that the full amount of the premiums would be deductible in the taxation year in which the premiums were paid.”
Although this quoted test would appear to be satisfied in this example, CRA then paraphrased this test much more restrictively as referencing a situation where the “excess contribution was in fact made inadvertently.”
Neal Armstrong. Summary of 6 October 2017 APFF Financial Strategies and Instruments Roundtable, Q.4 under s. 146(8.2).
CRA is willing to treat the deemed s. 146(8.8) RRSP benefit on death as a withdrawal of an excess RRSP contribution
An individual, who made an excess RRSP contribution in 2015, dies in 2016. CRA noted that technically, in order for the executor to claim a s. 146(8.2) deduction in the terminal return for the excess contribution, there was required to be “a payment from the RRSP in respect of undeducted premiums of the taxpayer … received by the taxpayer in the year,” but then stated:
[T]he CRA generally accepts that an amount deemed to be received by a deceased annuitant under subsection 146(8.8) and included in the annuitant’s income for the year of death under subsection 146(8) … should be treated as a payment received by the annuitant for the purposes of subsection 146(8.2).
Thus, the deduction generally would be available (which was to be claimed directly in the terminal return without using a Form T746.)
Neal Armstrong. Summary of 6 October 2017 APFF Financial Strategies and Instruments Roundtable, Q.2 under s. 146(8.2) and s. 146(8.8).
CRA indicates that a common-law partners’ separation agreement can engage the s. 73 or inter-RRSP rollover even if technically they have no legal rights to settle
Ss. 73(1.01)(b), 146(16) and 146.3(14) provide for a rollout to a common-law partner or a partner plan pursuant to a written separation agreement governing the division of the common-law partners’ assets in settlement of their rights arising on the breakdown of their relationship. CRA considers that, although there is no right in Quebec arising out of a common-law partnership (as per Éric v. Lola, 2013 SCC 5), it nonetheless “is not impossible for the annuitant to determine to create rights under a written separation agreement relating to the division of property with the annuitant’s common-law partner or former common-law partner” – and that “such an agreement could be concluded at the time of separation, whether or not a common-law union agreement providing for the rights of each in the event of the union's failure has been previously signed.”
Neal Armstrong. Summary of 6 October 2017 APFF Financial Strategies and Instruments Roundtable, Q.1 under s. 146(16)(b).
The s. 220(4.51) exemption from providing departure-tax security on up to $100,000 of capital gains is available for larger gains
The Rulings Directorate confirmed that, for purposes of calculating the s. 220(4.5) security for departure tax that an emigrating individual has elected to defer, the individual qualifies for the exemption under s. 220(4.51) from providing security on the first $100,000 of capital gains even if such gains exceed $100,000.
Neal Armstrong. Summary of 5 June 2017 Internal T.I. 2014-0561391I7 F under s. 220(4.51).
CRA lists its requirements for a partner to claim, for FTC purposes, a disproportionate share of withholding tax borne by the partnership
The general CRA policy in Folio S5-F2-C1 is that a Canadian partner is only entitled to claim foreign tax credits based on its pro rata share of the foreign withholding tax borne by the partnership on dividends etc. received by it. If, however, the Canadian partner can provide “sufficient, clear, and unambiguous evidence with his tax return” that the … foreign tax paid by [the] Partnership was computed by reference to his treaty status with [the particular foreign country]” then all of such tax can be claimed by that partner for FTC purposes.
For example, A and B each have a 50% interest in the Partnership, and are resident in Country X and Canada, respectively. On payment of a $1,000 dividend by Xco (resident in Country X) to the Partnership, Xco, as required, withholds $25, calculated as 5% of the $500 portion of the dividend beneficially owned by B.
CRA indicated that, in addition to the evidence of payment of the foreign tax discussed in Folio S5-F2-C1, the partner making such a non-pro rata FTC claim should provide the name, Canadian tax ID number (if any), country of residence, nature and amount of the partnership interest, calculated income allocation and allocated foreign withholding tax amount of each partner – together with evidence demonstrating that the withholding was computed by reference to each partner’s treaty status.
Those drafting partnership agreements might consider this list.
Neal Armstrong. Summary of 8 September 2017 External T.I. 2014-0558601E5 under s. 126(1).
CRA indicates that foreign currency is not property for purposes of the suspended-loss rules
A U.S.-dollar loan owing to an affiliated trust is repaid on its maturity, thereby resulting in an s. 39(2) FX loss to the borrower. The trust promptly relends those U.S.-dollar to the borrower. Is the s. 39(2) loss (which is deemed to be a loss from the disposition of foreign currency) suspended under s. 40(3.4) (or is it a superficial loss under s. 40(2)(g)(i), if the borrower is an individual)?
CRA indicated that the issue here is whether the USDs received by the borrower under the new loan are identical property to the foreign currency that it was deemed to have disposed of under s. 39(2), and noted that under the "property" definition in s. 248(1), “money could constitute property unless a contrary intention is evident” – but then stated:
However, the CRA's position is not to consider money to be identical property for the purposes of subparagraph 40(2)(g)(i) or subsections 40(3.3) and (3.4) in a circumstance such as this where a taxpayer sustains a loss under subsection 39(2).
Therefore, no suspended (or superficial) loss.
Neal Armstrong. Summary of 6 October 2017 APFF Financial Strategies and Instruments Roundtable, Q.10 under s. 40(3.3).